Better Place: Eliminating Dependence on Oil By Taking A Customer Centric Approach

The world's dependence on oil has been a growing concern among nations since the oil crisis in 1973. After the 9/11 terror attack, the issue has been elevated to national priority in many countries including Singapore, China, Japan, France, Denmark, Israel, Australia, and the US.

At a recent talk, Shai Agassi, Founder of Better Place--a $200 million funded company--presented his company's solution to the world's dependence on foreign oil.

To put some numbers around the issue, today, the US spends $550 billion a year for importing crude oil into the US--$300 billion of which go to moving our cars. Dependence on oil is unsustainable not only due to cost but also due to economic and political risks: the US has less than 3% of the world's oil reserves. Take the estimated $300 price per barrel of oil, and we're looking at $1.5-$2 trillion per year cost to the US in unleveraged money spent where oil is being produced--not a tourism destination by any means. 

The existing oil barrels in the world--20 million of them--yield about 3 years' worth of driving.  Ethanol, which had its 15 seconds of fame about a decade ago, cannot meet demand: put together, all the ethanol in the world can provide a total of 5 days' worth of driving. By 2015, in the US alone, there will be 900 million cars on the road.

A number of approaches have been tried before but with little or non-scalable success: The original electric car was taken off the road and hybrid vehicles are not sustainable solutions in the long run due to their dependence on oil and their unaffordability in the developing world.

Now, Shai Agassi has a solution that works. What's different? Agassi's unrelenting focus on the customer and on the corresponding ecosystem as main drivers behind his business model.

The Customer

What Agassi understands that no one did before, is that customers have a contract with their cars. This, Agassi says, is a social contract.  To succeed in moving people to adopt the electric car, this contract must be honored at all times. The contract includes five main sections: ownership, convenience, performance, cost, and status.

1. Ownership:  People want to own their car. They don't want to share it with others on a regular basis. That's why ride shares haven't become mainstream.
2. Convenience: People want to have the option of a 5 door, spacious, comfortable sedan even if they drive alone. 
3. Performance: People want to have a car that can claim its own on the road. Even if they will never race it, most people simply need to know they can. The Electric car can go 0-60 in 7.5 seconds.
4. Cost: For adoption to take place, the cost of an electric vehicle needs to be on par with fueled cars so the total cost of ownership needs to be same or less. This becomes extremely important when developing countries are considered, where car sales are growing at a dizzying pace and cost of ownership and status--not the environment--are the significant determining factors.
5. Status: Status still plays a role, and Agassi understands that. "The Electric vehicle cannot be a golf cart," he said in his speech. It needs to look like a car you'd want to drive--one that you can afford to be seen in.

The Ecosystem

To support the customer shift, four key elements in the customer ecosystem need to be addressed: policy, infrastructure, resources, and the car itself. Agassi is piloting the program in Israel where all four have been put to the test:

1. A government supported policy: In January, Shimon Peres, Israel's president, announced Israel's commitment to eliminating its dependence on oil by 2020. Among other moves is a differentiated tax policy that will provide incentives to customers who buy electric vehicles early.  Over the next 10 years, tax on gasoline cars will increase from the current 72% to a whooping 110%; tax on Electric cars will go up from the initial 10% and be capped at 50%. Denmark, according to Agassi, chose to bypass this grace period and will tax gasoline-powered cars at 110% immediately; consumers will enjoy a 0% on electric vehicles.
2. Infrastructure: Battery chargers will become ubiquitous. They'll be placed across the country where people spend most time: home, work, and in shopping areas. Each time a driver parks, the car will be automatically charged up.  For the average 20 times per year a driver goes over 120 miles straight with no stops, battery swapping stations will be placed across the country at strategic locations. Three minutes in and you're out. Faster than it takes to fuel your car.
3. Resources: Electrical power is in abundance. Even if all the cars on the road operated on electricity, the electrical grid would see a mere 6% increase in demand over a 10 year period.  With Agassi's experience in delivering software solutions, he understands exactly what's needed to help the grid manage the fluctuating demand.
4. Car: According to Agassi, early on, car manufacturers weren't too thrilled about his vision--except for Renault-Nissan. The company is now in final stages of production and will have a fleet of cars ready for the '09 pilot in Israel and Denmark, followed by Australia.

Put together, the customer contract and the supporting ecosystem provide a Whole Solution.  Better Place demonstrates that it fully understands the psychology behind a consumer behavior and not only speaks to the psychosocial framework that drives customers' contract with their cars, but also to the ecosystem that needs to be put in place to support the change.

In 2007, when he left SAP, Shai Agassi's vision was to make the world a better place. And today there's hard evidence that he is--in much larger ways than most startups ever will. It is not a technology or a product that Agassi is offering--he's not dreaming of an exit next year. Agassi is offering a future that will forever change the human experience, and with it, the political and economic landscape of this world.